One of the toughest lessons for preparers to learn is how to collect what clients owe.
Despite preparers’ years of experience and devising of formulas, getting clients to pay remains as much art as science. “Always go with your gut feeling,” said Jamaal Solomon, an Enrolled Agent with J.S. Tax Corp. in New York. “I can write a novel about my mistakes. For example, doing discounted work for someone who still complains about the discounted fee. Best to just let the potential client find another accountant. Chasing after someone to pay the discounted fee is depressing – especially when you provided top-quality work.”
“A client’s ‘gotta-be-kept-from-the-IRS’s-clutches’ situation is never a priority after I solve the problem,” warned Theodore Prioleau, EA, of Parkton, Md.-based Teddy The Tax Man. “Get the money! Get the money! Get the money! All up front if possible. But seldom is that possible, so we ask for a retainer before we begin work.”
Limited recourse
Collection letters from your firm can range from friendly reminders to threats of legal action. Yet whether turning to boilerplate correspondence or to courts of law, many preparers feel they hit what seems a conscious effort by clients to avoid payment.
EA Duane Carey in Napa, Calif., still recalls his practice’s first year “when clients picked up their returns and many said they didn’t have their checkbook and would send a check in the mail. At that time I didn’t accept credit cards. Then I’d have to phone and write to remind clients of the past-due fee. I felt like a collections agent, not an enrolled agent.”
“If the client is not willing to pay, they won’t,” said Javier Solis of Los Taxes Inc., in New York. “We had clients who preferred to go elsewhere for preparation just because they didn’t want to pay. We’ve seen those same clients coming back to the office after two or three years because their returns were not prepared properly and, at that point, they pay what they owe and we charge in advance for further services.”
Even fellow professionals bring risk. Said Bruce McFarland, a senior tax specialist in Belton, Mo., “The toughest lesson is from getting work from other preparers who are overworked or over their head with a client.” Twice “known preparer(s) in good standing, both CPAs,” promised McFarland payment when the client paid them. “Both ran (up an) invoice over four thousand, both never paid. One actually locked up her practice and relocated,” he said.
Preparers do hold one big trump card.
“Do not file a return until you have collected your fee,” said EA and RTRP Kathy Hallford, NATP member and owner of Kathy’s Tax Service in Gilbertown, Ala. “After 12 years in business I did take several bookkeeping and tax return clients to small claims court, won all 11 cases, collected on four and have judgments filed in the probate office – but will probably never be able to collect. Unless one of the ex-clients forgets and accidentally comes back into my office, it’s nearly impossible to find out where they work or property they own to levy again.”
“Collect the fee before e-filing the return,” said Brian Thompson, a CPA with Little Rock, Ark.-based Bailey & Thompson Tax & Accounting. “Seems that once the return is filed, clients are less motivated to pick up their completed return from our office and pay.”
“The key to a successful tax practice is fair but firm billing practices,” saidYolanda Johnson, an EA at Tax Accountants Inc., in Orland Park, Ill. “Billing must be done regularly for all clients with long-term tax cases. I’ve learned firsthand that clients that don’t pay the IRS are likely not to pay you once they feel they’re out of hot water.”
“If you carry receivables, you’re crazy,” added EA Brian Mock of Peoria, Ariz.-based Mock & Associates, Inc. “Just about every time we have made an exception to our collections policy, we’ve been left holding the bag.”
“ARs are bad for business,” added EA Joseph Kerner of Ohio-based TaxNow! “Chasing fee collections is like catching butterflies with a net with large holes.”
‘Get tough’
Past or close relations should inspire no trust. Don’t send returns until you’re paid “no matter how long the taxpayer has been a client,” warned Lawrence Walkden, EA and RTRP with Snohomish & Monroe Accounting in Monroe, Wash. CPA John Stancil in Lakeland, Fla., has discounted fees for friends in the past “and I guess they took that as a license to take their own sweet time in paying,” he said.
Cynthia Jeanguenat, EA with Virginia Beach, Va.-based Horizons Unlimited, teaches courses in launching businesses “and I make this point to budding entrepreneurs: When it comes to collecting your money, get tough or you will be out of business pretty quick.”
“We all go into business and want to be nice,” Jeanguenat said. “Experience says not everyone pays their bills, causing you to be not so nice. It costs money to mail reminders, and more time and money if you have to leave your business to file a judgment.” Her firm accepts credit and debit cards, checks, or cash to simplify clients’ payment – and clips an invoice to a return envelope mailed with organizers.
“Face-to-face contact or, for clients out of state, personal phone contact eliminates the tendency not to pay,” she added.
Scope it out
EA Gloria Kuhn in Middletown, N.Y., called simply setting your fees by form “a mistake.”
“You can spend a week preparing a Schedule C or an hour,” she said. “What about schedule D? If you have sales of capital assets such as securities or real estate, you have a really big job on your hands. Or you can have two simple items to enter.”
Some clients also walk in with proper receipts, clear trails of stock sales and cost-bases at their fingertips. Others arrive with buckets of unorganized receipts and tangled tales of employee purchase plans and stock options, splits, inherited stock and re-invested dividends all in the same portfolio.
“Even if you want to charge for doing their bookkeeping, how much? Is this hitting you during tax season? How much is your time worth?” Kuhn said. “This is time that I can’t devote to clients who will pay higher fees.”
She also advised always asking to see a client’s potential file before you quote a fee. “One person told me she and her husband only had W-2 forms, so I quoted a fee accordingly. She had like 25 of those and I spent over an hour just ensuring the data input was accurate. And because of all the short-term employment, you have to be concerned that there isn’t another [W-2] floating around somewhere that didn’t hit your desk.”
Kuhn asks “a lot of questions” before quoting a fee over the phone to a potential client – and even then adds a verbal disclaimer that if the return turns out to be more work than initially represented, the fee jumps.
Other countermeasures
Thompson asks for an upfront retainer for new clients needing several years of returns prepared. “A retainer up front will let you know how motivated the client really is to get the work done,” he said.
“Always get a retainer for clients with multiple-year returns,” added Eric Hansen, RTRP with Hansen Accounting in Omaha, Neb. “If they were not afraid of the IRS, they won’t be afraid of you.”
John Spellman, an EA and president of Tax Team of New England Inc., in Nashua, N.H., offers several formulas for sample billing:
A client with a 1040 return with Schedules A, B and D runs $275 to $375. “The most they will pay at my office is $375,” added Spellman. “If I expect the billable time to be higher, I’ll contact them to discuss an increase. Other than that I eat the cost overage.”
A client of several years who started at $175 for a 1040 with Schedules. A, B and D gets a reduced price if they no longer have a large Schedule D. “I know of several preparers that as a practice add $5 to $15 on to each return they prepare every year,” Spellman said. “At what point is it not economically valuable to increase fees on your client for the same basic return you have completed for years?”
Phoenix-based RTRP Marvin Nasses never quotes a fee until he knows the complexity of the return, giving “at least a nominal fee” for a potential new client wanting some analysis of past-year returns and always quoting a fee before work is done even. “Clients will sometimes pay a fee and others will ask you why you billed for the very same work,” he noted.
Philip King of Crown Tax Service, San Antonio, said he has a steady number or repeat clients used to his payment methods. “New clients receive a review of their tax situation, are given a quote and are told that payment is expected when they receive their prepared return,” said King, who accepts checks, cash, or debit or credit cards and who reports only having had one problem with an uncollectable check.
“Since I knew the approximate time his refund would hit the bank, I was there when the bank opened and cashed the NSF check for a $5 fee,” he recalled. “I didn’t care about the fee as the check was for $1,600.”
For a few clients EA Burton Carter, of Kingman, Ariz.-based Burton E. Carter & Associates, uses the TFG card “that we hold until advised that funds have been credited, then we call [the client] in to activate the card and pay us. Most [clients] pay as they sign their 8879s to e-file.” Carter added that his firm also accepts credit cards and that last season almost half of his clients used that means to pay their bills.
Fairness all around
Kuhn said your payment policies harden with time. “When I was younger, I always had to think about not getting clients annoyed, keeping them happy so that they would always remain clients. Then I had to realize that if you’re working for free or fighting for your payment, you don’t want this kind of work anyway.”
“Clients just want to have qualified, trained, knowledgeable tax professionals preparing their returns. After the return, they just want to be treated fairly and honestly when it comes to the billable items,” said Spellman. “It boils down to this: Treat your clients honestly and with respect and your business will grow.”
